Aug 1, PDF | International trade has an important share in GDP in different countries. to the relationships that are between countries, in which each. Globalization has a major impact on the economic scenario of individual countries and the global economy as well. International economic relations have . In this entry we analyze available data and research on international trade of a causal relationship: trade is one of the factors driving economic growth.
These usually involves being part of an economic agreement e. Relates endogenous to factors that are either related to the origin or the destination of trade.
This usually involves customs procedures tariffs and non-tariffsthe overall performance of the national transport and logistic sector and how well an economy is connected to the international transport system through its gateways mostly ports and airports.
Thus, the ability to compete in a global economy is dependent on the transport system as well as a trade facilitation framework: A multimodal and intermodal freight transport system composed of modes, infrastructures and terminals that spans across the globe.
It insures a physical capacity and connectivity to support trade and its underlying supply chains. Customs procedures, tariffs, regulations and handling of documentation. They insure that trade flows abide to the rules and regulations of the jurisdictions they cross. Cross-border clearance, particularly in developing countries, can be a notable trade impediment with border delays, bottlenecks and long customer clearance times.
Globalization and International Economic Relations
This underlines the need for enforcing revenue collection so that income from trade is taking place according to established rules. Customs fraud often takes place where revenue collection is lacking and requires accurate product valuation and labeling. Banking, finance, legal and insurance activities where accounts can be settled and risk mitigated. They insure that the sellers of goods and services are receiving an agreed upon compensation and that the purchasers have a legal recourse if the outcome of the transaction is judged unsatisfactory or is insured if a partial or full loss incurs.
Improving the transactional efficiency of trade can also lead to more opportunities for fraud. Trade misinvoicing is a common form of transactional fraud and is reported to be the largest source of illicit financial outflows in the world.
It can be used for money laundering when a larger sum than the actual reported trade transaction is paid to a third party, with the surplus diverted to another foreign account. It can also be used for tax evasion when a lower transactional value is reported, while the real transactional value is settled through a third party.
Many factors have been conductive to trade facilitation in recent decades, including integration processes, standardization, production systems, transport efficiency and transactional efficiency: Integration processes, such as the emergence of economic blocks and the decrease of tariffs at a global scale through agreementspromoted trade as regulatory regimes were harmonized.
The higher the level of economic integration, the more likely the concerned elements are to trade. In this case, the integration process is not uniform as only a portion of a territory is involved. China is a salient example of the far-reaching impacts of the setting of special economic zones operating under a different regulatory regime.
Standardization concerns the setting of a common and ubiquitous frame of reference over information and physical flows. Standards facilitate trade since those abiding by them benefit from reliable, interoperable and compatible goods and services which often results in lower production, distribution and maintenance costs.
Measurement units were among the first globally accepted standards metric system and the development of information technologies eventually led to common operating and telecommunication systems.
Globalization and International Economic Relations | Economy Watch
By offering a load unit that can be handled by any mode and terminal with the proper equipment, access to international trade is improved. Production systems are more flexible and embedded. It is effectively productive to maintain a network of geographically diversified inputs, which favors exchanges of commodities, parts and services.Imports, Exports, and Exchange Rates: Crash Course Economics #15
Information technologies have played a role by facilitating transactions and the management of complex business operations. Foreign direct investments are commonly linked with the globalization of production as corporations invest abroad in search of lower production costs and new markets.
China is a leading example of such a process, which went on par with a growing availability of goods and services that can be traded on the global market. Transport efficiency has increased significantly because of innovations and improvements in the modes and infrastructures in terms of their capacity and throughput. As a result, the transferability of commodities, parts and finished goods has improved. Decreasing transport costs does more than increasing trade; it can also help change the location of economic activities.
Yet, transborder transportation issues remain to be better addressed in terms of capacity, efficiency and security. The financial sector also played a significant role in integrating global trade, namely by providing investment capital and credit for international commercial transactions.
An exporter can thus receive a payment guarantee from a bank until its customer finalizes the transaction upon delivery. This is particularly important since the delivery of international trade transactions can take several weeks due to the long distances involved. During the transfer, it is also common that the cargo is insured in the event of damage, theft or delays, a function supported by insurance companies.
Monetary policy can thus be a tool, albeit contentious, used to influence trade.
Globalization and International Trade | The Geography of Transport Systems
All these measures are expected to promote the level of economic and social development of the concerned nations since trade facilitation relies on the expansion of human, infrastructure and institutional capabilities. Global Trade Flows The nature of what can be considered international trade has changed, particularly with the emergence of global value chains and the trade of intermediary goods they involve. This trend obviously reflects the strategies of multinational corporations positioning their manufacturing assets in order to lower costs and maximize new market opportunities.
The structure of global trade flows has shifted with many developing economies having a growing participation in international trade with an increasing share of manufacturing activities.
Globalization has been accompanied by growing flows of manufactured goods and their growing share of international trade. The trend since the s involved a relative decline in bulk liquids such as oil and more dry bulk and general cargo being traded. Recently, the share of fuels in international trade has increased, mainly due to rising energy prices. Another emerging trade flow concerns the increase in the imports of resources from developing economies, namely energy, commodities and agricultural products, which is a divergence from their conventional role as exporters of resources.
This is indicative an economic diversification as well as increasing standards of living. There are however significant fluctuations in the growth rates of international trade that are linked with economic cycles of growth and recession, fluctuations in the price of raw materials, as well as disruptive geopolitical and financial events. Further, G7 countries account for half of the global trade, a dominance which has endured for over years.
A growing share is being accounted by the developing countries of Asia, with China accounting for the most significant growth both in absolute and relative terms. A large share of these imbalances were the outcome of the fiscal policies of exporting countries purchasing American financial instruments, such as bonds.
This enabled the US dollar to uphold its value. Imbalances can also be misleading as products are composed of parts manufactured in several countries with assembly often taking place in a low cost locations and they are then exported to major consumption markets. In international trade statistics, a location assumes the full value of finished goods imported elsewhere while it may have only contributed to a small share of the total added value.
Electronic devices are illustrative of this issue. Trade imbalances also do not reflect well the utility an economy derive from it, such as cheaper goods for consumers. Further, the growth of ecommerce has resulted in new actors to be involved in international trade, at times indirectly.
For instance, ordering a product online may result in an international trade transaction controlled by a single corporation. The closer economic entities are, the more likely they are to trade due to lower transport costs, less potential delays in shipments, common customs procedures and linguistic and cultural affinities.
The most intense trade relations are within Western Europe and North America, with a more recent trend involving trade within Asia, particularly between Japan, China, Korea and Taiwan as these economies are getting increasingly integrated. Global Trade at a Threshold?
At the beginning of the 21st century, the flows of globalization have been shaped by four salient trends: An ongoing growth of international trade, both in absolute terms and in relation to global national income, a growth which appears to be leveling off. Containerization tends to grow at a rate faster than trade and GDP growth. While the global population and its derived demand will continue to grow and reach around 9 billion bydemographic changes such as the aging of the population, particularly in developed countries, will transform consumption patterns as a growing share of the population shifts from wealth producing working and saving to wealth consuming selling saved assets.
Japan, South Korea, Taiwan may not place them as drivers of global trade, a function they have assumed in recent decades.
The demographic dividend in terms of peak share of working age population that many countries benefited from, particularly China, will recede. The regulatory environment and the involvement of governments, either directly or indirectly, is subject to increasing contention.
Reforms in agricultural trade have not been effectively carried on, implying that many governments e. This is undertaken with the intent to protect their agriculture in light of the risks associated with dependency on foreign providers and possible fluctuations in prices.
Intellectual property rights remain a contentious issue as well since many goods are duplicated, undermining the brands of major manufacturers and retailers. There is also a whole array of subsidies that are influencing the competitiveness of exports such as low energy and land costs as well as tax reductions.
As both maritime and air freight transportation depend on petroleum, international trade remains influenced by fluctuations in energy prices. The paradox has become that periods of high energy prices usually impose a rationalization of international trade and its underlying supply chains. However, periods of low or sharply declining energy prices, which should benefit international transportation, are linked with economic recessions. Environmental issues have also become more salient with the growing tendency of the public sector to regulate components of international transportation that are judged to have negative externalities.
International trade enables several countries to mask their energy consumption and pollutant emissions by importing goods that are produced elsewhere and where environmental externalities are generated.
Thus, international trade has permitted a shift in the international division of production, but also a division between the generation of environmental externalities and the consumption of the goods related to these externalities.
Last and not least are technological changes in the nature of production systems. The robotization and automation of several manufacturing processes, often labeled as the fourth industrial revolutionis changing the comparative advantages on input costs, particularly labor.
- Trade and globalisation
Since a good share of international trade is the result of the convenience of comparative advantages, automation and robotization can undermine the standard advantages of lower labor costs and make manufacturing more productive at other locations, such as those closer to major markets.
Further, since many developing economies remain complex places to undertake business as state and national firms are privileged, the loss of labor cost advantages could undermine future development prospects.
This is likely to have a strong influence of the nature and volume of international trade, which could level and even regress.
Globalization has played an important role in fostering economic relations among nations across the world. In the era of globalization, countries have realized that economic co-operation with other nations is strategically important for the growth of the economy.
The important aspects of globalization and international economic relations are - Globalization ensures easier movement of goods and services across nations. This is an absolute necessity for fostering international economic relations.
Globalization and International Trade
Easier movement of people between countries has also been made possible by globalization which is conductive to international economic relations. This also helps people in one country to migrate to another for employment thereby addressing the problem of unemployment in many countries.
Globalization leads to free trade between countries. Since the early days of globalization numerous bilateral trade agreements have been signed between countries. Globalization has ensured easier and faster flow of information across geographical boundaries. The success of economic relations is often dependant on information.
Globalization has led to reduction in cultural barriers which has proved to be conductive for economic co-operations among nations.